Welfare reform measures are this week breaking the link between benefits and inflation, but it has been warned the cap could force 200,000 children into poverty.

Although the Coalition has called the reform a cap on benefits at one per cent increase a year, when inflation is taken to account it is effectively a reduction of benefits, which will be effecting families until 2015.

Children’s charity Barnardo’s has warned that low income families will be most affected by the changes, with the poorest families set to lose up to £215 a year.

Barnardo’s chief executive Anne Marie Carrie commented: “It is shameful that the Government is risking the well-being of vulnerable children growing up in poverty by breaking the link between benefits and inflation, adding to the hardship they faced last year when energy bills soared by up to 10 per cent, leaving the poorest families reporting that they are unable to afford adequate heating.

“This move adds insult to injury as many low income households are already teetering on the brink of financial crisis, squeezed by the rising cost of essentials and high childcare bills that price them out of working more hours."

Families interviewed for Barnado’s research said that they were struggling to heat their houses adequately because of rising heating bills.

Labour MP Rachel Reeves said: "Millions of working families on low and middle incomes will be worse off as a result of George Osborne's measures, even once the rise in the personal allowance is taken into account.

"And all this is on top of the VAT rise and freezes in tax credits and child benefit that have already happened.

"Parents who are in and out of work are worried that their ability to provide for their children could be jeopardized by the cap, with 60 per cent of households affected containing a working parent."

Ms Reeves continued: "It cannot be right that a couple with two children earning £26,000 a year will lose more than £12 a week, while 8,000 millionaires will get a tax cut worth an average of over £2,000 per week.

"Striving families should not be paying the price for this government's economic failure.”

Barnardo’s recent report ‘The Real Cost of Living’ has found that because poorer families spend a higher proportion of their income on weekly budget essentials such as fuel, energy and food, they experience inflation up to a third more than families with higher incomes.

Ms Carrie of Barnardo’s continued: “If the Government wants to make work pay, then why are the UK’s poorest families excluded from its new childcare funding measures, making it impossible for them to work their way out of the poverty trap?

“Only by acting decisively and urgently to support vulnerable families by committing to review its cap on benefits increases and helping to make childcare more affordable for the UK’s poorest families does the UK have any hope of reaching its target of eradicating child poverty by 2020."

George Osborne has defended the changes to benefits, including the controversial bedroom tax, by describing Britain’s welfare system as a broken structure. In order to fix the problem, Mr Osborne vowed to “use every penny” to support hard working people.

The Chancellor said: “With all our welfare changes, we’re simply asking people on benefits to make some of the same choices working families have to make every day.

“To live in a less expensive house. To live in a house without a spare bedroom unless they can afford it. To get by on the average family income.”

Labour MP Rachel Reeves said: "Millions of working families on low and middle incomes will be worse off as a result of George Osborne's measures, even once the rise in the personal allowance is taken into account.

"And all this is on top of the VAT rise and freezes in tax credits and child benefit that have already happened.

"It cannot be right that a couple with two children earning £26,000 a year will lose more than £12 a week, while 8,000 millionaires will get a tax cut worth an average of over £2,000 per week.

Matthew Reed, chief executive of the Children's Society expressed his concerns over the cap and said: “As a result of today's move, life will be harder for families from all walks of life, including 300,000 nurses and midwives, 150,000 primary school teachers and 40,000 members of the armed forces.

“Families already struggling to provide their children with food or a winter coat, or heat their homes are being pushed closer to the brink.

“Child poverty blights lives and is a scar on our society.

“Today's 'hardship penalty' punishes working families on low incomes as well as those looking for work, paving the way to a rise in child poverty.”